Gas prices in Europe continue to skyrocket. On September 14 at 10.26 AM Moscow time, the price of the nearest October futures contract on the TTF spot gas index on the ICE futures exchange crossed $800 and stood at $808 per 1000 cubic meters. m according to the exchange data. A sharp rise in prices has been observed since the end of August, on September 9, the cost of gas for the first time exceeded $ 700 per thousand cubic meters. M.
The European Commission’s Executive Vice President, Frans Thimerfrank, said on September 14 that the jump in gas prices should lead to more active work on the transition to renewables (RES). “The paradox is that if we had a green agreement five years ago (EU strategy for the transition to renewable energy. – Vedomosti), we would not be in this situation, because we would be less dependent on fossil fuels and natural gas.
The real irony is that one of the causes of the crisis is the instability of renewable energy generation. Thus, the calm achieved in the past few weeks in the seas washing northern Europe, on September 13, reduced the share of electricity generation from UK wind farms to 4.9%, with an average annual rate for 2020 of 18%. In such circumstances, as early as September 6, the British authorities had to launch the previously stalled thermal power plant at West Burton A coal, which the Air Force reported on September 7. Thanks to this, the share of coal as a source of electricity in Britain increased by 0.7% per day.
But electricity prices were rising, and the price hikes were especially painful for small grid companies. According to Bloomberg, on September 7, PFP Energy and MoneyPlusEnergy left the market, the British energy operator is working on how to help its 94,000 customers.
Adam Lewis of consultancy Hartree Solutions acknowledges that if the situation does not change, the UK will be hit by a blackout. As early as September 6, British energy company Centrica predicted the negative consequences of higher gas prices and a concomitant increase in electricity prices. In the event of a cold winter, gas prices will rise even more, according to Centrica Energy Trading Director Kasim Mangerrach. It could get to the point that some energy-intensive companies in the UK and European Union (EU) will simply stop producing due to gas shortages. “If a long cold winter comes, given the current situation, we may have problems. We will have to buy LNG almost regardless of the price to meet demand,” Mangerash told the Financial Times.
While Europe and Britain can meet the daily demand of the population for gas, they are not able to fill the storage facilities with it. This was confirmed by John Kilduff, partner at Again Capital, in an interview with the US channel CNBC. According to him, the level of gas filling of storage facilities in Europe is 16% lower than the five-year average and the record low for September.
Similar problems arose on the other side of the Atlantic. Reuters reported that California’s independent grid operator last week asked the Department of Energy to lift 60-day restrictions on natural gas power plants, allowing shuttered 200-megawatt plants to reopen. The state is increasingly dependent on wind and solar power, but a severe drought this year has reduced the state’s hydropower capacity, and wildfires threaten transmission lines that bring in power from other states. California said it could face a potential supply shortfall of up to 3,500 megawatts during peak hours, the equivalent of consuming 2.6 million households.
The current situation illustrates how painful the transition to renewables is. The stability of renewables is not yet high, and this is already leading to increased demand for gas and higher prices for electricity and fuel”, says Pavel Mitrofanov, General Director of Corporate Ratings and Environmental, Social and Corporate Governance at expert rating agency RA. In his opinion, it is unlikely that The EU for the foreseeable future is abandoning environmental priorities, which will result in “regular price shocks during the period of capacity shortage”.
Dmitry Marinchenko, senior director of natural resources at the Fitch credit rating agency, believes that rising gas and electricity prices can negatively affect energy-intensive industries, including steelmaking, as well as petrochemicals, where gas is used as a feedstock. In addition, the explosive growth in prices, if it does not slow down, may also adversely affect macroeconomic indicators – inflation, consumer demand and economic growth rates. Much will depend on how cold the winter will be and whether Gazprom will become more active in selling gas on the spot market, while Gazprom seems to be in no hurry to significantly increase supplies, despite the more favorable price environment.
A cold winter, combined with a delay in the start-up of Nord Stream 2, may cause a real energy crisis, but if the winter is mild, the problem of gas shortages at air gas storage facilities may disappear without serious consequences, Marinchenko said.